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FOREIGN EXCHANGE

Baht among biggest gainers as dollar index rises

The Nation

Low yields in US, Japan and strong economic fundamentals behind inflows

BANGKOK: -- The Asia Dollar Index, which tracks Asia's 10 most-used currencies excluding the yen, has risen 0.4 per cent this year and the Bloomberg-JPMorgan Latin America Dollar Index is up 0.7 per cent.

Among the currencies, the Thai baht gained the most - 2.6 per cent. The baht rose for the ninth day, the longest winning streak since 2008, as near-zero benchmark interest rates in the US and Japan spurred demand for higher-yielding assets. The currency climbed to a 17-month high, on portfolio inflows to the stock and bond markets.

According to currency trackers from xe.com, the baht yesterday morning was traded at 29.79 per US dollar, against 30.58 at the end of last year. Comparatively, the Malaysian ringgit trailed closely behind, gaining 1.37 per cent in the corresponding period. The Philippine peso also gained 1.04 per cent to 40.623.

Betting on the strong economic fundamentals, foreign investors are channelling money into Thailand, which is expected to show economic growth rate of 5 per cent this year after 5.7 per cent last year. The planned Bt2.27-trillion infrastructure investment is also expected to largely boost the country's long-term economic outlook. This explained why global funds purchased another $2.3 billion of Thailand's sovereign debt than they sold this month through yesterday and poured a net $274 million into local equities, stock exchange and Thai Bond Market Association, according to data.

The Malaysian economy, a growth outperformer in Asia in 2012, is expected to see another good performance in 2013. Standard Chartered Bank forecast 2013 GDP growth at 4.7 per cent, down slightly from a projected 5 per cent in 2012. Consumption is expected to remain firm due to the tight labour market, fiscal handouts and the reduction of individual income tax liabilities and the implementation of the minimum wage hike in January. Moreover, the Malaysian government's Economic Transformation Programme, which aims to transform the country into a high-income economy by 2020 via increased investment, is likely to support investment growth in 2013. Investment surged 21.3 per cent year on year in the first half of 2012.

The bank expects the Philippines to outperform the region, with 5.8 per cent growth in 2013. Domestic activity - private consumption, investment and government spending - are likely to support growth. The economy has been resilient to external shocks, and growth is likely to pick up once the global economic climate improves. Inflation should gain momentum but remain within the target range. The bank has revised inflation forecasts slightly lower and also anticipates an upgrade to an investment-grade status by 2014.

"There is normally a degree of intervention in the case of Asian central banks," Sacha Tihanyi, senior currency strategist at Scotiabank in Hong Kong, told Bloomberg. "There is currently a desire to not interfere too much with fundamental forces, though speculative forces will be more of a concern."

South Korea's won and the Philippine peso led Asian gains in 2012, prompting policy makers in the two nations to clamp down on the use of currency forwards in the fourth quarter. The currencies advanced 8.3 per cent and 6.8 per cent, respectively, before appreciating further this month.

The Philippine peso has gained 0.9 per cent this year and reached 40.55 per dollar on January 14, its strongest level since March 2008. The won is forecast to gain 3.3 per cent this year versus the dollar and the peso 3.9 per cent, based on the median estimates in Bloomberg surveys of analysts.

All these countries are attracting foreign funds as foreign investors seek higher returns. Compared to 0.25 per cent in the US, 0.1 per cent in Japan and 0.75 per cent in the euro area, these investors can gain 2.73 per cent in Korea and 2.75 per cent in Thailand.

Bucking the trend is the Indonesian rupiah and Singapore dollar.

Standard Chartered Bank expects Singapore to likely underperform the rest of Southeast Asia in 2013, with growth expected to be only 3.2 per cent due to weak external demand. Singapore's external exposure to the global economy is over 150 per cent of GDP, and is cited as the main reason.

According to the bank, the rupiah is under pressure from the deteriorating current account balance, which is likely to have swung to a $16-billion deficit or 1.8 per cent of GDP in 2012, from $1.7-billion surplus or 0.2 per cent in 2011. The trade surplus in 2012 is expected at $15 billion, down from $34.8 billion in 2011. It also expected GDP to have slowed to 6.3 per cent in 2012 due to weaker global trade and sharply lower prices of commodities, which made up 70 per cent of exports. Sustaining the effect is continued foreign direct investment, which is expected to hit a new record of $20 billion from $18 billion in 2011.

As of January 14, global funds cut their holdings of local sovereign debt by 2 trillion rupiah ($206 million) so far this month to 268.53 trillion rupiah, the lowest level since November, finance ministry data show.

The rupiah's story remains the same in that dollar supply onshore is limited, Gundy Cahyadi, an economist at Overseas-Chinese Banking Corp in Singapore, told Bloomberg. There is still interest in Indonesia but investors are beginning to hedge their investments in case of further currency declines and any difficulty in exiting the market.

-- The Nation 2013-01-18

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